Fail bail

When the lights went out ten years ago, Wall Street banks folded like cheap suits. A financial crisis turned into a credit crisis that swept the world. I remember talking to the guy who managed the local grocery store in Oakville. “We’ve been told there may be no shipments next week,” he said, shocked. “Head office told us they can’t finance the loads.” So suburbanites were close to not having their Bran Flakes and organic broccoli, thanks to collaterized debt obligations and scuzzy financiers in America.

That’s the world now. A digitized, seamless, integrated interconnected web of mutual interdependence both comforting and terrifying. Money has gone virtual and the financial institutions which control those channels control our lives. If the web went down, with no electronic banking, ATMs, credit card authorizations or online shopping, you’d have to get by with the cash in your pocket.

So, how much is on you right now? How much currency do you keep at home?

Right. Screwed. And this is why no big bank can be allowed to fail. Which brings us to bail-ins, and what happened on Wednesday. Ottawa just published the final set of actions – two years in the making – that would materialize if RBC, BeeMo, Scotia, TD, CIBC or the National Bank went paws-up. That could be the result of a devastating housing collapse or a run on bank deposits caused by panicked consumers. It could be a domino effect from a global economic event. Maybe a war.

So, what would happen?

First, let’s deal with what you do not need to fear, and what some people have been trying to milk in order to line their own pockets. Here. For example, is Toronto-based gold flogger BMG Group’s scary take on what a bank bail-in would mean:

“Those at risk of a bail-in in the event of a failure are subordinated debt holders, bondholders, preferred shareholders and any accounts in excess of $100,000 not covered by CDIC insurance. Their bonds, preferred shares, deposits etc. would be converted to capital to re-capitalize the banks. According to the financial statements of the CDIC, they insured some 30% of total deposit liabilities, or $684 billion, as of April 30, 2014. The remaining 70% not insured would primarily be large depositors, including both large and small businesses, and other banks and financial institutions.”

So, says BMG, if you own bank preferreds shares (or an ETF holding them) or have more than $100,000 sitting in accounts at any one bank, your wealth could be seized by the government and turned into common shares in the bank with the money being used to help rescue that institution. Obviously the shares would be near-worthless.

And here is the almost-always spectacularly incorrect and very popular web site Zerohedge, also telling you to be scared:

Deep inside the announcement, in the section discussing “tax fairness and a strong financial sector”, we have official confirmation that Canada has just become the latest country to treat depositors as the bank creditors they are, and as such, they too will be impaired, or “bailed-in” the next time a Canadian bank needs to be rescued. This new “bail-in” regime is spun as benefitting taxpayers; what isn’t mentioned is that most of those taxpayers who will be “protected” also happen to be the impaired depositors (also known as creditors) in these soon to be bailed-in banks, which begs the question: just who or what is being protected here?

Pretty simple. If a bank fails deposits will not be seized, even for big guys (as happened in Cyprus). No preferred shares will be forced to convert into common stock. No ETFs that own those preferreds will be impacted. You wouldn’t lose your chequing account funds, nor the money in your RRSP, TFSA or anything else [email protected] got you into. Sadly, your mortgage or HELOC would not be cancelled, either. Yes, shares in that bank would collapse on the stock market and stockholders would be Hoovered dry, but the institution would be recapitalized nonetheless.

Banks will be required to have enough capital in reserve, plus sufficient debt which is convertible into equity, to survive. If collapse happened, bank regulators would force conversion of those assets into common stock, allowing the bank to remain open and preventing any burden falling on taxpayers (that’s called a ‘bail-out’).

So, unless you owned a high-yield bail-in bond, there’d be no impact should the earth open and swallow the CIBC. Here is how the feds see this structured:

The regulations set out key features of the regime, including that the rules would only apply to debt issued by D-SIBs (the banks) that is unsecured, tradable, transferable, and has an original term to maturity of at least 400 days. Such debt is held predominantly by foreign and domestic institutional investors, such as asset and fund managers, typically as a small portion of these investors’ overall portfolios.

The bail-in regulations do not apply to deposits, including chequing accounts, savings accounts and term deposits such as Guaranteed Investment Certificates, which will continue to benefit from the Canada Deposit Insurance Corporation deposit insurance framework. As such, deposits are not convertible under the regime.

Now, will one of our banks fail? If the answer’s ‘never’, you know where to invest.

The Bank of Canada made the right call by holding rates at their current levels today.

There’s a lot of uncertainty in the Canadian economy at the moment and almost no inflation pressure so raising rates would have been completely irresponsible.

All the real estate bears on here calling on the BoC to raise rates just to try and crash the RE market are crazy. Rates are low because growth and inflation are low. Period. If that further juices RE than that’s an unfortunate consequence but regardless it doesn’t change the fact that the broader economic condition that we find ourselves.

If anything, I hope that the BoC considers a rate cut next time or at least signal that the current levels will remain until we actually require them to be raised.

Hmmm, this is kind of a creepy topic…I knew there was a reason my wife was compulsively collecting loonies and toonies!

Sounds like it would be a good time to be broke, hopefully because ya paid out all yer debt the month before haha

Actually, lately I’m hearing Europes’ “the final countdown” on the local radio station so often that the hairs on the back of my neck are startin’ to stand up…I didn’t hear it as much when it charted in the 80’s fer chrisakes!

When was the last time a Sched 1 bank was effectively insolvent for any reason…likely when the Canadian Bank and the Imperial Bank of Commerce were merged.

This the underlying fundamental reason why Canadian Shed 1 banks won’t fail. Not can’t but won’t. They are defacto NGOs.

Even while those privately owned “First whatever ” US were dropping like flies, our paternal Shed 1s were ticking along like clockwork. Yes, yes, their common share prices plummeted for a couple of years but none of them even shaved a penny off their common share divs let alone suspend a dividend distribution. In fact in 150+years no Canadian Shed 1 has ever suspended or reduced a dividend. As perfect a record as there is.

Even that 3-4 year period of plummeting common share prices was an incredible investment opportunity for DRIPing the dividends. Static dividend payout but at one point around 2009 that static dividend bought twice as many new shares as it did a year or so earlier. And now about 9 years later, the share prices are up around 300% and the divs themselves are up maybe 50%.

So, don’t lose a minute of nap time worrying about the collapse of any Shed 1 bank, they employ what are likely the finest risk management minds on the face of the earth.

1) The government will never seize your deposits, because they said so. And government always keeps its word;

2) No need to worry, because banks will always be solvent and the government will force them to recapitalize….

And we all know that a) The government can change the rules as it sees fit, even retroactively and b) Black swan events are exactly that – things which catch the majority off guard.

The US suffered its biggest blow in 2008, which you dutifully noted Garth, however, what was omitted was the effect it had on Joe Q Citizen, including those who worked at the “too big to fail banks”.

What most people have yet to understand is the bigger picture. The reason why the Feds are legalizing pot and want to know if you “flipped” your primary residence. They’re connected – because the socialist programs of western governments have exhausted the coffers and continue to bleed governments dry, hence the need for additional tax revenue. It will end with a bang and a whimper and few will see it coming.

My last vacation was a long trip by road through different states, provinces visited the sea, the mountains, the plains, I really enjoyed that experience. I really enjoyed the opportunity to confirm, again, that the routine is just a mirage, an illusion and that there is a whole terrific, exciting world outside in which I can be the true person I am.

Wanna take a guess what happens before bondholders or any equity holders in the banks are even slightly at risk?

40% of the loan book at a typical big-5 Canadian bank, linked to Prime, has its rates escalated dramatically as the banks are able to control “Prime” at their discretion.

Borrowers are left as smoking holes in the ground before the owners of the banks and those who extended the bank credit are even slightly at risk.

Would the BoC/GoC sit back and watch 40% of the Canadian banking system’s loan book go up in smoke, with systemic devastation to the economy?

Of course not. They’d lower policy interest rates, into negative territory if necessary. And potentially engage other measures such as QE. The economy would be in such a state of deflation by such point anyways. The public would demand it.

Even fixed rate residential mortgages, in Canada, contain very generous provisions which have the ultimate effect of giving the bank the ability to call loans. For instance, the bank can basically deem “loss of value” on a property, using an appraiser they select (and the borrower pays for) and declare a fixed mortgage loan in default, even if all payments have been made. These provisions, likewise, will be exercised to liquefy mortgage books before shareholders, let alone bondholders or retail “depositors” are placed at risk.

Contrast this with the US banks which generally do not have such broad ability to re-price existing debt, and conduct much of their business in the residential RE arena with longer-term 30-year mortgages.

“#8 Leo on 04.18.18 at 6:10 pm
So if Bank fails, what will happen to the deposit over 100K insuranced by CIDC ?”

You line up as an unsecured creditor. You might not get 100 cents on the dollar, but absent widescale fraud in the bank, there should be some sort of fractional recovery of uninsured amounts.

This is assuming that the government/CDIC doesn’t ‘strong-arm’ other institutions to take over a failed institution. For example, I personally believe a few credit unions going forward, who are over-exposed to RE and small-business lending, undercapitalized, and no access to the capital markets for equity or debt fundraising will probably be driven into the hands of the big-5 national banks. In deals that are brokered by politicians in the back rooms.

I’m not sure why anybody would want to hold over $100,000 in a bank account unless you were running a fairly large business and needed that kind of float for monthly operations. Investment is a better option.

If it’s just savings and not a business float put it in a “Cash Trading” account and buy some liquid investments. Or if you are really worried max out your RRSP’s and enjoy the up front tax savings. RRSP holdings are segregated and therefore relatively safe even if the institution goes broke. Don’t use a “Margin Account” because the rules are funny for margin accounts, your broker can lend out your shares to short sellers so recovery is less certain.

The other option some people use which is a bit of a pain but if you are that paranoid it is worth the effort, is to have several bank accounts at different banks each $100,000 or less. The insurance is per person per institute. So you can insure $200,000 by having an account at say TD with $100,000 in it and another with say BMO with another $100,000 in it. You can also park $100,000 with your spouse but trust me this is even more risky than having $200,000 in one account. The money could be “poof” gone even if nothing happens in the banking sector. If your spouse can’t come up with their own $100,000 chances are they can’t steward yours. It’ll all end up in the VLT.

But anyway again I don’t know why anyone would want to hold that much cash. They say 3 month’s living expenses. I suppose for some people that might be $100,000 but not most of us. For me the number is closer to $15,000. If I run out, I would sell some assets and charge it back up.

Even gold is a better idea than $100,000 in cash, although a lot more volatile. More of a hedge than an investment, but in the event of a widespread banking crisis it will probably do better than cash. But even if we go with Garth’s old-timey advise (I think his weighting has dropped to 0%, he doesn’t talk about it much anymore other than with disdain but I still have the book!) it shouldn’t be more than 5-10% of your total portfolio, and if it goes back up to $1900 again for Dog’s sake take some profits and reallocate! (Lesson learned.)

The Bank of Canada made the right call by holding rates at their current levels today. …

There’s a lot of uncertainty in the Canadian economy at the moment and almost no inflation …

… Rates are low because growth and inflation are low. Period. If that further juices RE than that’s an unfortunate consequence but regardless it doesn’t change the fact that the broader economic condition that we find ourselves.
__ __ __ __

A margin account or any pension, mutual fund, etc etc that participates in securities lending normally receives 105% of the value of your securities in collateral. Usually in highly rated and highly liquid fixed income.

When has any retail banking depositor had to make a deposit insurance claim on any federally chartered Canadian bank? Trick question, never. Sure, past performance is no guarantee of future performance but never in the history of CDIC has a cent been paid on deposits at a Sched 1 bank.

The Bank of Canada made the right call by holding rates at their current levels today.

There’s a lot of uncertainty in the Canadian economy at the moment and almost no inflation pressure so raising rates would have been completely irresponsible.

—————————————————–

The CPI is designed to be adjusted so that inflation can be hidden. The contents of the basket of goods can be changed to arrive at whatever figure the government wants. The BOC takes it’s instructions from them.

This is why I’m voting for Doug Ford this election.We have to deport all illegal immigrants, make Ontario business friendly by cutting taxes to 0%, and get rid of the bottom feeders by cutting welfare rates by 95% and forcing them out of our great city of Toronto. If one cannot find a job because of their poor choices or bad luck in the genetic lottery, too bad. Toronto is for winners and not losers!

The 5 people attending the show complained about being re-assessed 10 years running for northern residence deductions and translated documentation are needed for Inuit assist in completing their returns. Although the CRA did not provide any translated documentation/promotional material for CVITP when requested, my Senator, Dennis Paterson (well, in all honesty, his office people), was glad to get the documents. I would have requested via my MP, Hunter Tootoo, but…

Remember, Garth did recommend that moving to Nunavut would be #10 of 10 things to do in 2018.

When, not if it does indeed happen, the shareholders will be protected before the depositors. I rest my case on the zero interest the depositors have been forced to accept for faithful deposits since 2008’s hiccup while profits have soared and dividends have been dished out non stop for a decade thus far. But no reward for the backbone of the bank DEPOSITORS. Nothing.

The best currency is debt, and I have none of that. Just the other wrong kind. In the bank.

I don’t want to be alarmist like those fools you quoted, but this is slightly misleading because OFSI can forcibly convert certain preferred shares that were issued since 2013 (if it explicitly says so in the prospectus).

Not that it will ever happen — I totally agree with your overall point that this encourages well-capitalized banks (by removing moral hazard) so there’s nearly zero chance of a default in our lifetime.

Actually, lately I’m hearing Europes’ “the final countdown” on the local radio station so often that the hairs on the back of my neck are startin’ to stand up…I didn’t hear it as much when it charted in the 80’s fer chrisakes

“Now, will one of our banks fail? If the answer’s ‘never’, you know where to invest.” -GT
————————————————————

Nicely worded GArth, to cover all possibilities (you have a good lawyer): “If the answer’s ‘never’…”

Now, IF the answer is “rarely, but you never know”, you may want to hold some bullion, is implied if one reads between the lines.
Hey, one may even want to short some of the ‘Big 5’, as a hedge. So many people just love the banks – a nice time to act contrarian.

Why would an average person have $100k in the bank long term? With the pathetic pittance they pay in their “High Interest” (oxymoron) accounts?

Some financial wise sole named Garth Turner once said that the poor average Joe 6-pack puts their money in the bank, while the wealthy OWN the bank! The Big 6 made $42 billion in profit last year. Nuff said.

This is how I describe our Canadian banking system to an American.
When it comes to quick kills:
In Canada the individual citizen is forced in to bankruptcy in order to protect the bank (usually subsequent to the bank making bad decisions, O&Y comes to mind). If that citizen commits suicide as a result than that is just too damn bad. We will subsidize the funeral.
In America if the bank fails, it fails. The sun will rise tomorrow and on you go in the land of second chances.
In the long run:
Our banks are more likely to rob you insidiously over time with outrageous fees than American banks.
The Canadian government loves its banks.

aSince we have never been in so much debt, globally so interconnected, money run exclusively on computers, without borders, I don’t think the intention of Canadian regulators, politicians means more than Garth’s personal wish on how NAFTA should work on any particular detail.

Thinking that a country can stay an island within the global financial world sounds so reverse zerohedgeish…

It would take days or weeks just to figure out how to override programs to release or stop the flow of funds when the scenario, in which these software were designed to operate is no longer valid.

I doubt people have any idea to the extent the world is cruising on autopilot, we don’t even know which manual controls are still functioning, we have not used them for so long and it’s questionable whether we have people on board who still know how to use them.

Anybody thinks a global financial collapse preparedness can even be simulated for training purpose?

The rest of the world has a different opinion with Canadians having the highest debt levels in the world and the extreme housing bubble. The biggest question is why were interest rates this low for this long in Canada?

CDIC only insures 100 grand which is far too low and most of these stupid banks only let you withdraw 50 grand a day. I know what to do when the bank bail-ins hit in this country. You phone the bank/banks and tell them I need to write a bank draft and you just make it out to a family member before they freeze all their assets thus freezing out everyone. Soon bank bail-ins will be commonplace in Canada. The chain reaction catches most people off guard so be ready and up to the minute.

When these bank bail-ins hit in Canada the lucky first ones will get 80 to 90 percent of their money back then as the bail-ins continue you’ll see a sliding scale where the depositors get less and less back.

You made that up. No depositors will be affected within CDIC limits. – Garth

When the Vancouver housing bubble implodes some of the the credit unions in British Columbia will turn insolvent then you’ll see a chain reaction. These will be the first quote bank bail-ins which will be the credit unions. This is the last place on Earth to be holding money at the present time.

You’re way too smart for this website and it’s comments section (seriously).

Clearly you must have deduced by now that the information presented here is biased in a manner that encourages people not to panic and/or stop investing in “balanced” financial assets, like ETFs (and thus is just as suspect as advice given about “guaranteed” investments like houses, gold/silver, Tesla, Tiger Blood, etc.).

As noble as it is to try to ignite the spark of critical thinking here in this intellectual ghetto, I urge you to seek greener pastures!

#21 Nonplused

You mentioned “3 months living expenses”; that’s meant to be cash in hand, not cash in the bank. If it’s in the bank and you can’t get a hold of it (e.g. bank holiday), it’s really not going to do you a lot of good, is it?

The entire point of preserving wealth in the form of cash is for when the threat of the dreaded “D” word (deflation) resurfaces.

Think of cash as a voucher or promise to pay you for previous labour / work / speculation / etc. that you engaged in; by holding it, you’re preserving the option to exchange it for something in the future. And if one truly believes that all asset prices will fall (as a result of deflation) in the future, one starts to see the wisdom of holding onto one’s cash (at least up to a certain point; if you get to the point of societal collapse, I’m not sure cash will be worth much).

As a side note to everyone, I wouldn’t take much comfort in the concept of CDIC (the Canadian Deposit Insurance Corporation). Like insurance, it’s only in place to mitigate contained / one-off events; i.e. a single bank collapsing.

Canada’s banking oligopoly is structured, it seems anyway, so that one bank is very unlikely to collapse. It is much more likely that the entire Canadian banking system would be overwhelmed and all the banks would collapse at once – at which the CDIC would be overwhelmed by the number of claims from depositors who lost their savings.

Back to the insurance analogy – insurance will cover a few houses burning down, and perhaps even cover the cost of an entire city burning down. It’s not set up, however, to mitigate the costs associated with the entire country burning down… :|

What are you going to buy with bullion? – Garth
********************************************

Garth, now you’re being stubborn! Haven’t you been ‘listening’?
Do you know how many million $’s will fit in a shoe-box sized container of gold bullion? Work it out – you’ll be surprized.

Also, as stated before, bullion is not for ‘buying’ stuff – it’s for ‘buying’ insurance against CB’s reckless policies which are dilutive to fiat. As a money manager, surely you must know this. Besides, in case of a fire, your paper/plastic bills (even in a safe), will likely burn/melt and disappear whereas gold may melt but will still be around (perhaps deformed) but with the same value.

That’s why Costco sells those long term provisions packs and why you’re actually recommended to have a few of them (I think 3 months supply for prairies, 2 years for west coast like Victoria/Seattle etc). Nobody reads that emergency preparedness guidelines.

What about if you had $100,000 in each bank? Do external investment companies count? Is there anyway you can protect more than $100,000?

The world has no idea for the most part how much or for how long the autopilot has been on. All it will take is a solar flare too strong in the wrong direction (ours) or an electrical grid control computer (still running xp or vista) to get a virus. :/. Frickin scary to think of actually.

Us banking sector seems to be in trouble now.People over invested in banks because they knew the bank stock will continue to go up with the 7 or 8 time rate increase for the next 2 years.Now even with recent good reports by top us banks their bank shares are coming down instead of going up.Any time the rate goes up the share value goes down.What will happen if the rates continue to go up for the next 2 or more years.There will be no real growth in us because the cheap money will not be available to the business to expand.The yielding curve of the banks will continue to go down and the market could crash even before 2019 as feared because people will pull the money from the banks.Real estate sector in canada is on the verge of collapse and some banks or credit unions could be in trouble with us market crash.

Nice to hear that the banks will not fail, good feeling. I suppose we all use the bank, the internet web for business transactions. Someone mentioned the “fees” is what the banks prosper on over interest.

I remember in the seventies people would not trust the banks. Also, farmers would borrow from the bank for equipment then ending up losing their farms. And like some bloggers said the banks are not your friend. Like #24 young & foolish says “hear about debt to the ceiling and always going up…”

So it looks like the youth have come immune to the consequences of borrowing.

But would like to add that banks have too much power over the economy and it feels they could care less of the outcome or lives. It seems cruel and non productive in the long-term. Communes in the sixties were right, keep away from the system as much as possible.

This is an exerpt for March sales totals from a North Shore realtor that he has been sending these updates for decades….

[The Market is in a state of disbelief. Sales and prices keep on plummeting. The Real Estate Board states: “Fewer home sales and listings in the first quarter of 2018”.

Here are the facts. My charts go back to the 1980’s so when I say the worst ever, I mean since 1984 in West Vancouver and 1989 for other areas. When I say sales for March 2018, I refer to firm, reported deals. There could be 1 or 2 that have long subject clauses and will be reported later. At that time, I will go back and correct the chart. When I mention the average sales, this refers to the average sales for the month of March from 1984. The Worst refers to the worst March reported over the past 34 years.

I can understand your cynicism towards most of the gold bugs out there Garth. Their preaching that gold will go to $5,000 or $50,000 etc isn’t doing themselves any favors. They also rarely mention the fact that in those scenarios, they would have to cash-in their gold in exchange for currency, and also pay the capital gains as well. And realistically, under a scenario with $50,000 gold, weakness in the bid for currency would be the reason for the high gold price in the first place, and trading your gold for a weakened currency would be speculation as opposed to wealth preservation.

Me personally, I view bullion as dual-purpose asset. First it allows me to opt-out of the banking system and some of the risks that I want to avoid (but it has to be properly stored and insured, and that incurs a cost). Second it allows me to have an asset with no counter-party risks. I’m not saying owning physical gold is without risk (loss, price declines), but for people who are looking for an alternative place to put some of their wealth, gold certainly is not at the bottom of the list, and at many times in the past (and recent history), its position can rise to the top.

That being said, I think most retail buyers of gold are merely speculators hoping to cash-in on the holy grail gains, which simply lumps them into the category of bitcoin speculators, etc. I started off that way, but I have changed my perspective over time thanks to my ‘studies’, and I now accumulate it as a fixed ratio of my net worth, with wealth preservation and liquidity in mind.

And to highlight the wealth preservation feature of gold in regards to currency devaluation, Gold has been rising since December 2013 in Canadian Dollars, and is now 33% higher since then.

Let’s get one thing out of the way. Debt is meaningless. Recessions will never happen again. I think every government of every country figured out a way to deal with any economic problems. That is QE. Sure they’re cutting back now but at the slightest sign of trouble, they will increase QE and reduce interest rates to 0 or negative rates. None of this debt matters. Not in our life time anyway. Invest in markets and real estate. Be assured the government will step in at the slightest sign of trouble. I wish someone gave me this advice 10 years ago.

That’s probably true but with RRSP’s they cannot lend them out at all. 105% is pretty good but if your stock runs for some reason that might not mean enough.

Garth on #50 “What are you going to buy with bullion? – Garth”

What are you going to buy with stocks? If you hold the bulk of your gold (which is 5-10% of your portfolio) in a fund like Sprott you just sell it and use the cash to buy other things. On the other hand if what you are saying is don’t hold physical well yes that is a huge pain in the butt. I have a few gold coins about because they are pretty but selling them is difficult and depends on the Scotiabank gold window being open, not likely during a bank holiday.

Re-reading the comments got me thinking about a weird occurrence in Swift Current a few years back.

I’d made arrangements to grab a coffee with a customer who was running a bit late at TH…grabbed my fix, sat down, and the power went out! Turns out the crew installing fibre optics cut a power cable, entire south side went dark…no debit, No CCs, No registers…you’d think the world had temporarily ended by the shrieks eminating from the (un) serviced line up. Chits anyone? Almost everyone was using plastic!

Pretty minor in retrospect, but reaffirmed (again) my regimen that it’s ALWAYS a great idea to have some spare cash around; most people don’t. Took a few hours to get civilization back up and running, btw.

Apparently the scene at several local restaurants was a bit more hectic…

#80What are you going to buy with bullion? – Garth on 04.19.18 at 12:20 am

What are you going to buy with bullion? – Garth

Uh OK what are you going to buy with securities and ETFs and bonds? Wouldn’t you have to sell them for cash? Same with gold. Margin will only get a person so far and just as stocks are marginable so are gold contracts. Physical gold and silver poised for a 30% gain by this time next years, ESPECIALLY SILVER

I wrote about this a long time ago on this blog. The yield curve in America is nearly flat. I stated when this happened they’d kill short term rates to prevent the yield curve from inverting. Thus the huge rally in the base metals and ironically on a day the U.S. dollar was stronger. Very bullish for gold.

The fact that something as important as our currency is controlled by profit driven corporations is why we need to test the Guillotines on the lawmakers to ensure efficient operation before scaling the system up .

What you’re seeing now is the manipulators of everything starting to kill off the 2 year yield or short term rates to prevent the yield curve from inverting. The two year rate may never break the 3 percent mark, that’s why you saw the huge spike in commodities, the base metals and a silver report came out at the same time today showing a big shortage in scrap silver. Unfortunately the ones who manipulate the short term interest rates also manipulate the price of silver. After 7 years since 2011 I doubt things will change abruptly.

I’ll keep it simple. Despite what spin they try to put on the legislation to reassure people that they won’t ever lose their money, remember this: The government considers it’s continuity to be of paramount importance, therefore in times of a disaster they won’t hesitate to change the legislation or enact some emergency powers to do whatever they feel ‘necessary’. Don’t think for a minute that those in charge would ever say “well we can’t go taking the peoples money even though it is our only option” and just throw up their hands and walk away leaving a power vacuum. When it happens you’ll learn that Garth’s famous phrase “It’s not different this time” doesn’t only apply to housing bubbles. Argentina and Zimbabwe here we come.
AND, have you heard, there is yet another new $10 banknote being issued soon, vertically oriented this time. I wonder if it will have an expiration date on it? Get ready for the demonetization of not just the older bills (as was announced last month) but the larger bills too (just like in India).

Then maybe the greedy sobs ought to lower their price. I’m going to price my 80’s condo for five million dollars and then I’m going to express my own disbelief when it doesn’t sell. Those terrible sales numbers are really good news but prices haven’t even come back yet. They’re still at the Moon. Maybe they’re no longer on The Far Side of the Moon. But a Very long way to go.

“The banks suck and their stocks are going to get slammed. Their loan loss provisions are a joke.”

I think you’re ignoring the rapid expansion of spread that the banks currently are seeing on account of decreasing creditworthiness of their customers. Its interesting to note that the subprime segment of the market is historically some of the most profitable business in lending. Check the Glacier Credit Card Trust stats (Canadian Tire credit card products) if you don’t believe me — even after absolutely massive losses on the portfolio (10%+ written off a year), they’re still coming out with enormous ROI that beats the current schema of a hundred basis points give or take on residential RE mortgages.

Worst case scenario, the Canadian banks end up owning a lot of Canadian RE at prices that are more reflective of a longer-term bottom of RE, than the current nosebleed valuations. I’ve already explained earlier why the Canadian economy will be systemically in a liquidity crisis far before the banks have any risk of insolvency.

#11 LuckySoB on 04.18.18 at 6:25 pm
So, if you have over 100k with an institution, its time to open multiple CDIC insured accounts and keep them at or under 100k?
——————————————
Or put it in a GIC
CIBC right now has a 1 year that’s cashable after 30 days at 1.85 %

#39 dr talc on 04.18.18 at 7:52 pm
Even in an infinite universe Ezra Levant is a waste of space.
Easy rule of thumb:
No one who speaks the truth is allowed on television.
—
Conversely, every ridiculous notion can find a home somewhere on the internet.

The first directive for bank regulators is to protect bank depositors from loss. Giving depositors confidence is the reason banks are regulated and that CDIC exisits.

The first directive of ethical bank management is also to protect depositors, then debt investors and last of all equity owners. Banks unlike normal corporations have a special fiduciary responsibility to depositors that is far above the normal duty of care to unsecured creditors. At least that is Buffett’s stated view (paraphrased). I don’t really buy it that depositors are unsecured creditors. They rank WELL ahead of secured debt investors in the minds of regulators, I believe. Secured debt investors rank above pref investors and equity investors and normal accounts payable creditors but should not rank above depositors.

So, bank bail ins were always meant to prevent bank failures in order to protect confidence in banks and protect depositors.

It would be utter nonsense to use depositor money to bail in banks unless things got really desperate and all other value and government guarantees were used up. In that extreme case yes depositors should 100% own the bank and ALL others completely wiped out.

If your stock runs it doesn’t matter. You are getting it back. If you sell that day you recall the loan. Nothing changes in your account. You can go in and view it. All securities lending transactions take place on the custodian books.

Of course it’s not money. It buys nothing. Bullion is a non-producing, 100%-speculative commodity with sometimes difficult liquidity (try turning it into cash if you don’t live in a city). – Garth

Gold is the ONLY money. We are in one of the very rare periods in the last several millenia that gold hasn’t been used as money since Nixon decapitated Bretton Woods in 1971, and I’m amazed you don’t know that.

Money is a medium of exchange. Gold is a rock. Amazed you do not know that. – Garth

Very Pollyanna, but that is how it should be with peoples savings institutions.

Unfortunately Lord Of The Flies governance will prevail after financialgeddon, due to the culture of the psychopaths in the corridors of $ control since the repeal of the Glass Stegal bill took place Stateside.

Poloz should have pulled the trigger yesterday. He said he expects inflation to head higher, even above the top of the range, but that it’s only temporary. If you go to the literature, you will see central making the same statement in the late 1960s. We know how that turned out. Of course they blamed the oil crises of 1973 and 1979, but the fact is, inflation took off years before the first oil crisis.

By intentionally allowing inflation to head to the top of the range, yet telling everyone “it’s temporary”, what he’s doing is trying to boost the economy by lowering wage costs. Employees won’t get COLA increases if employers believe the current inflation is “temporary”. He’s trying to manage inflation expectations while letting inflation itself heat up. The Keynesian foolery that inflation = growth is guiding his thinking. Stiglitz must be whispering in his ear.

I think the problem is if you truly believe the system is that frail gold actually won’t save you. Ninety percent of us starve in a year if civilization falls. If it’s just Canada in trouble you will want US dollars. Either your paper money works, or you won’t care about gold. I don’t see a scenario where you can buy beans with gold. Beans will be the gold.

Back in 1988 in Bellevue Washington, I would fuel up my 1982 Exciter Yamaha 250 motorcycle for $0.98/gallon. Cost generally $2/month. At the time I was earning $6/hour at the local Taco Bell and banking across the street in Factoria with Rainier Bank. There was an ATM card, however I preferred to keep cash in my pocket. There was no wi-fi or cell phone non-ionizing radiation to drive a person crazy, and Apple 2e and Commodore 64 were considered high tech.

The current world is a good/bad thing. There are jobs and there are plenty of foods, if you are fortunate to get them. The internet and technology have created much more isolation and non communication of people.

All this technology is really too much to handle for the brain. I recently read my 15 year old daughters essay, and it seems that the influence of snapchat and instagram have had a permanent negative effect on the ability to use grammar in the english language. Reading this essay, it seemed that English was not her first language, as if she were from a different planet. I fear for the mid 20’s and younger crowd. Serious problems potentially.

Banking is unreliable. With the current political system, say someone doesnt like you, someone can flip a switch and you cant get your money. Perhaps having a safe at home is more reliable.

Hi Garth
I would like to hear your take on Trans Mountain and the business climate in Canada. Foreign Investment etc.
The mega trend of Environmentalism and increasing Aboriginal stakeholder rights.

Here in Alberta it the topic on everyone’s mind.
I am personally swayed by the Alberta oil is more ethical (and environmental standards are better) then Saudi oil; and we are going to use oil regardless.

I think in an oblique way your perspective is echoed in your “don’t have too much home bias” in your portfolio.

It just seems radical viewpoints seem to hold the floor now while the middle is too busy earning a living.

“It just seems radical viewpoints hold the floor now while the middle is too busy earning a living.”

Exactly. Those who have been excluded from earning a living, or don’t want to, are busy filling the internet. The rest of us are too damn exhausted working, worrying etc., and instead settle for a show on Netflix only to go to bed to do it again tomorrow. Servitude?

The builders figured it out, when the prices of condos tanks in the future all the potential buyers will walk away from their deposits and declare personal bankruptcy. Thus many more projects will be canceled.

It won’t happen to big Canadian banks, but all banks have very little equity as compared to assets. So a tiny drop in asset values (like 10%) could wipe out the equiyu. In reality though you just have the government or a new owner step in and the bank returns to profit and replenishes the equity before long specially if new equity is raised. At typical 20% ROE you can replace the entire equity with five years of profit.

Anyhow bank deposits are typically 90% as big as bank assets or close to it. So, a 10% drop in bank asset values only drops the asset value on which deposits have (I would argue first) claim by 11% or so. The point is unless a bank is a fraud or invested in criminally stupid loans and other assets there should be no chance at all of taking a massive haircut on deposits even in the most extreme cases.

I would have thought that, the chances of doom being very low, but not quite negligible, getting a couple thousand dollars in 1 oz silver coins would put you in good shape for the zombie apocalypse. Anything short of that is probably better handled by simple patience.

Silver coins are not money, unless they are Mint-issued denominated currency. They they’re worth the face value, or a fraction of what you paid for them. Great plan. – Garth

I have about 50K in cash deposits in a credit union and 300K+ in mortgages from them. If they fail and I don’t get the cash out, they can knock it off the mortgage. The debt I hold with them is larger than then amount of cash I have. lol So why should I care?

The real reason is the buyers will forfeit their deposit and most will just declare personal bankruptcy when the price of condos tanks upon completion of these condo projects leaving the builders “holding the bag”. Rising costs is a total bunch of malarkey.

#5 RentYVR on 04.18.18 at 6:03 pm
The Bank of Canada made the right call by holding rates at their current levels today.

There’s a lot of uncertainty in the Canadian economy at the moment and almost no inflation pressure so raising rates would have been completely irresponsible.

All the real estate bears on here calling on the BoC to raise rates just to try and crash the RE market are crazy. Rates are low because growth and inflation are low. Period. If that further juices RE than that’s an unfortunate consequence but regardless it doesn’t change the fact that the broader economic condition that we find ourselves.

If anything, I hope that the BoC considers a rate cut next time or at least signal that the current levels will remain until we actually require them to be raised.

============================

You mein Herr are very confused /at best/trying to be polite here and spectacularly wrong in your assertions.

Price of money/aka interest rates and capital has nothing to do with the current state of the economy. Or the fact that the population is indebted.

When there is uncertainty, the price of money and capital goes up, not down. Who in their right mind will lend you for less in a higher risk environment? They would like more, i.e. higher rates.

BoC and other central banks have bastardized the very nature of money replacing it with coupons with expiration date.

So this bumped up the price of other assets as frankly only an idiot will hold their coupons, in this Garth is absolutely correct.

========================

As of the bail-in legislation, I am very confused here.

Did we not say that our banks are the most prudent, safe, with insured deposits etc, despite the fact that they have no (zero) deposit reserves requirements?

So why this legislation then if the event is highly unlikely?

=========================
#111 Calgary Rip Off on 04.19.18 at 9:54 am
It is good to be aware of potential problems.

Back in 1988 in Bellevue Washington, I would fuel up my 1982 Exciter Yamaha 250 motorcycle for $0.98/gallon. Cost generally $2/month. At the time I was earning $6/hour at the local Taco Bell and banking across the street in Factoria with Rainier Bank. There was an ATM card, however I preferred to keep cash in my pocket. There was no wi-fi or cell phone non-ionizing radiation to drive a person crazy, and Apple 2e and Commodore 64 were considered high tech.

The current world is a good/bad thing. There are jobs and there are plenty of foods, if you are fortunate to get them. The internet and technology have created much more isolation and non communication of people.

All this technology is really too much to handle for the brain.

It is not just the technology.

It is the inability of the brain to process the information with which we are bombarded on daily bases.

The outcome from that is that we are unable to make decisions, spending equal time on tasks of different importance, neglecting the most important decisions like buying a house and trusting the authorities which in the cases of BoC and government leadership is well, deadly for both the individual and the society.

Information overload changes the way we behave, express oourselfs, i.e. the effects that you are observing.
we react vs. act, are driven vs. drive things, are told what to do vs. determining that ourselves.

Yoga, heavy drinking and potentially dyslectic people have advantage as their brains work differently and ignore much of the noise/crap/shit news we are.

Look at what Smoking Man has to say and take notes.

When in Greece I had a chance to speak to a (relatively uneducated) villager over a bottle of ouzo, who had more intuitive insight into capitalism, education than half the professors at Harvard.

A good look at any future SHTF in Canada is available by seeing what is happening in Venezuela.

Folks are lining up to get food and medicine primarily.

In Canada, you’d also see folks lining up for heating fuels.

I’d expect the value of an old wood stove, or anything that helps you eat, and stay warm to shoot through the roof.

I’d be well prepared for a long grid down grind as my efforts at minimizing exposure to government also provides unconventional heat, hydro, and transportation fuels that would be unaffected by the cessation of modern systems.

#108 Reynolds531 on 04.19.18 at 9:30 am
You can tell Garth is getting frustrated with the gold argument.

I think the problem is if you truly believe the system is that frail gold actually won’t save you. Ninety percent of us starve in a year if civilization falls. If it’s just Canada in trouble you will want US dollars. Either your paper money works, or you won’t care about gold. I don’t see a scenario where you can buy beans with gold. Beans will be the gold.
_______

Yep. All the thought experiments going on regarding an apocalyptic scenario, be it an asteroid, super volcano, EMP attack, giant Solar flare etc…, all end up agreeing with the quote: “We are 9 square meals away from chaos”.

The basic human needs will need to be met, food, water, shelter, medicine, and as desperation sets in – desperate measures will be taken.

I think the same. A desperate starving individual will walk right past your stash of precious metals and take those beans using lethal force if necessary.

Silver coins are not money, unless they are Mint-issued denominated currency. They they’re worth the face value, or a fraction of what you paid for them. Great plan. – Garth
—–

They are probably barterable, and in any case are more likely to be barterable than gold, which is too expensive per unit amount and doesn’t come in generally recognizable minted amounts. If you don’t feel you need the insurance anymore, you can wait for a good time to sell them back to the place you bought them from. Cash is good for a power outage, silver is good for being on the losing side of WWIII or the like, gold is of no use. I don’t actually have any silver, but if I had something, that’s what I’d have.

I bought the Big Five in ‘09 when people were dumping the stocks. It was a no brainer, no way would the government let them fail. Buy and hold and drip the divvy. You will do well. Safe as govt. bonds but with a capital gain upside long term imho.

This is a F.I.R.E. economy. In such an economy, financial institutions will always do well. There may be outliers, but the big ones will always do well. Very well. It was designed to be that way by those in charge. Those investing in the big 5 (or 6) will always do well. In the long run. So will those investing in RE. Long run, it’s a no brainer.

#122 Stan Brooks on 04.19.18 at 11:12 am
“Look at what Smoking Man has to say and take notes.” They do say laughter is the best medicine. :)

“When in Greece I had a chance to speak to a … villager … who had more intuitive insight into capitalism than half the professors at Harvard.” Did you speak to half the professors at Harvard? Or was your statement simply a rhetorical and hyperbolic flourish? :)

Gart, I can’t believe you’re not advising your readers to invest a small section their portfolio in crypto. It’s a once in a lifetime opportunity. Smart money started just investing now. If you’re against it, then either you don’t like money, or you simply don’t understand it. To which i recommend: go learn about it.

Gravy Train on 04.18.18 at 9:05 pm
#149 Smoking Man on 04.18.18 at 4:04 pm
“We have never met yet vial hatred.” That’s spelled vile hatred, genius. Did you think it came in pill form? 10 or 20 mg?

“Testament to my profound writing skills.” What! As a comedy writer? You suck and blow as any kind of a writer! Jackass! :)
….

Jackass? And I thought we were getting close. Why do my words trigger an self perceived intellect such as yourself? Do you really want to be in the James and Johneeyboy club of emotional hysteria?

So I take it your not coming to the second annual blog dog meet up on may 27th for my autograph.
………………………………………………………………….
Jackass? And I thought we were getting close. Why do my words trigger an self perceived intellect such as yourself? Do you really want to be in the James and Johneeyboy club of emotional hysteria?

It would be “a self-perceived intellect” Mr. Smoking Man. I corrected it for you since your a world class wtiter. “Still humping the American Dream” eh……….
BTW I have no emotion, raised as oldest son of an immigrant from Palermo Sicily. No son of a hard working palermitani can have emotion or show it! Come find out in May, Vuoi ballare con me?

The wording of that provision comes directly from a directive issued by the Bank of International Settlements (BIS, where the true lizards live in a very small world of their own… literally, a sovereign entity answering to no one).
Perhaps you could explain why the same wording (with a few window dressing edits) turns up in almost every developed nation’s policies if it’s so meaningless…

Poloz the clown or should I say the puppet came out and spewed his same garbage yesterday.Blah,blah blah ,this guy has no credibilty.We all know its all b.s.Just come out and say the truth,were’re broke and we will never have normalized interest rates again.Its been 10 years of zirp and we will follow Japan’s policy.There you have it.No need to guess or worry!

I think that the truth is what we would like so the we can deal with it not a controlled, pretend one.

Heard about Alberta oil better “ethically and environmentally” wise than Saudi oil #113 Dogman O1. And probably so true. And the middle class holding the bag. But when Black made the reasons why a refinery in Kitimat would that not make more reason for the middle class of BC and environment for the oceans cycle-of-life.

I am amazed with all the money (debt) that the leaders play with that their isn’t enough green energy programs in the play. The plastic build-up in the news is old news so can’t play on that leaders. Time to try a little harder.

What bothers me too is that the PM talks about the environment but flies in his jet (and what country is he in now)? Actions are what a person is really thinking and the words can be played.

After the leaky condo fiasco in BC….many builders turned each project into a separate legal entity. ie one may have “ACME developers” as brand name…but they may have “ACME Versailles”…..then ” ACME ______” etc.

As has been discussed here many times….the contract language re: strata and presales almost always favours the sellers.

Back in the late 1970’s early 1980’s, there were numerous projects that were abandoned at various stages of completion.

I’m not worried about the CDIC protected institutions. Ontario credit unions are not under CDIC, but we will pretend they are safe for now.

I’m worried about the people who have their money in places that act like a bank, have promotional material and offices that look like a bank, but have no safety net and take advantage people who don’t understand how rising interest rates increase their mortgage rates, payments and risks on interest rate sensitive investments such as syndicated mortgages.

Shady places that take money from retail investors to give to subprime borrowers, that bankrupt both syndicated mortgage investor and subprime borrower when a shaky housing market starts to collapse.

‘Atherton bought the house for $655,000 with a $55,000 down payment. Monthly payments of $6,000 with a mortgage rate of 11.99 per cent weren’t sustainable, but she was hoping to cut that sharply by refinancing after she moved in.’

Did the lender not think these payments and interest rates were a bit high and the principal may not be paid back in full?

The home buyer should have seen that renting a house in the area would have been half the price, but did she think she could refinance easily after she moved in because many other home buyers have done so before?

How many homeowners refinanced after moving that will have trouble qualifying for their mortgage payments at renewal?

Would deposits/rrsps/gics/tfsas at Credit Union be treated the same as banks?
Also, would a $200,000 deposit at a credit union for a 5 year term not qualify for any kind of depositors insurance as it extends beyond the 400 day requirement?
tx

Glad to hear Garth say the major Canadian banks are very unlikely to fail. Did collect once on CDIC several years ago, when limit was 60K. 54K operating money in Trust Company cashable GIC that was covered. It was intended for use within seven months and interest rates were high. Trust Company failed about five months in. Settlement included interest and payment was quite prompt. At the 100K limit I usually limit exposure to 95K and do not like compounding as even with todays low rates a couple of years would put the account over the 100K. I know, I look silly wearing a belt and suspenders.

I remember life before credit cards and computers! Left home in the fall of 1958 for the big city to attend university. Totally terrified. Never been away from the farm. My mother put a ten dollar bill under the in sole of one of my shoes and I remember the lecture. If I ever ended up in a bad situation (not defined) or hungry (that I understood), the ten dollars was to be used to get a taxi ride or a good meal in a cafe. (spell check never heard of a “Café”! Oh, I see now it wants to put an accent over the e !!! come on, I’m talking about 1958) Anyway, mandatory Physical Ed class and I was assigned to swimming and had to leave my shoes in an unlocked locker. I thought most kids probably had cash in their shoes and was terrified, even more, that some thief would hit the dressing room and we would come back and find the floor littered with shoes with their in soles torn out!

By the mid 1960s I was working in the states. Everyone had Gas Credit Card that was only good at the company stations. Paid the bill with a cheque in the mail each month. Everything else was cash or cheque. Playboy club in Chicago was cash only, seven fifty to get in, seven fifty for a drink, seven fifty for a dish of peanuts, seven fifty for cigarettes. I didn’t go upstairs as that was another seven fifty, so I don’t know what was up there. Was low on cash and had taken the ten dollar bill out of my shoe in 1962. (the ten Canadian would have brought a premium in US funds!) Just read this over, probably few reading it will believe it. So what’s new, my son took me to a Jays game in Seattle a few years back and, you guessed it, a beer was seven fifty and a hotdog was seven fifty. What’s inflation, fake news?

You probably guessed I came home to farm, married a prairie girl and raised three great kids. We worked hard, lived with in our means, had neighbors help us and we helped them back so don’t worry about us we’ll be fine.

Maybe I will stash a little cash away. I just remembered, we found three twenties taped to the back of pictures on the wall in my mothers suite when she left us close to thirty years ago. Guess it was in case she was ever hungry.

Stone in the garden has “80 is Not Old if You are a Rock” painted on it. Take care

“What about funds (ETFs etc) held in your company? Are they insured/protected in the event of a financial collapse?”…Oldie, you appear to have absolutely NO idea what Fearless Leader’s firm does.

They are knowledge brokers. They advise you/me where to invest our money…full stop.

We do not invest our money with Turner Investments so they do not insure or warrant the investments we individuals purchase. And no, ETFs are not guaranteed or insured by their issuers either unless I’m mistaken.

Fearless Leader provides portfolio advisory services using decades of experience and skill. Take his portfolio advice or don’t…that’s up to each of us.

AKS, you appear to be absolutely correct CCB and Northland were Schedule A (now Schedule 1) banks. My claim that no Schedule 1 or A banks have cost the CDIC a penny is incorrect. Thanks for educating me.

LivinLarge, I guess I am confused. I was informed that my savings would be transferred out of my bank and into an account held and managed by folks at Raymond James. The paperwork even includes a page authorizing the transfer of the funds…

Garth’s Instagram Posts

The views expressed are those of the author, Garth Turner, a Raymond James Financial Advisor, and not necessarily those of Raymond James Ltd. It is provided as a general source of information only and should not be considered to be personal investment advice or a solicitation to buy or sell securities. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor's circumstances and risk tolerance before making any investment decision. The information contained in this blog was obtained from sources believed to be reliable, however, we cannot represent that it is accurate or complete. Raymond James Ltd. is a member of the Canadian Investor Protection Fund.